Everyone knows Hong Kong property is outrageously expensive, but exactly how pricey has this city become? We are so accustomed to astronomical house prices that we have become numb to statistics such as “$20,000 per square foot”, and believe that coughing up half of one’s monthly income to pay the rent or mortgage is completely normal.

Recently released figures from the closely-watched 12th Annual Demographia International Housing Affordability Survey 2016[1] suggest that Hongkongers need to stash their earnings under the mattress for 19 years – assuming they don’t eat or pay their taxes in the meantime – before they can afford a matchbox-sized apartment.  This is estimated using the Median Multiple, defined as median house price divided by annual median household income, and is a metric widely used for evaluating urban housing markets.

Photo: Demograhpia.

To put that figure into perspective, residents of Sydney and Vancouver, the next two most “unaffordable” cities, need to save for 12.2 and 10.8 years, respectively.  Housing in the HKSAR is thus almost twice as expensive as the next runner-up. And the other contenders are developed and affluent economies with relatively high income levels compared with those in Hong Kong.  London and New York, traditionally considered among the world’s most expensive cities, score 8.5 and 5.9 years, respectively.

Critics will be quick to highlight possible flaws in the Demographia methodology: statistical biases, ambiguity over certain legal definitions, or the omission of more sophisticated measures involving convoluted jargon and obscure indicators that are, frankly, hardly understood outside the financial sector.  It is easy to poke holes in almost any statistical comparison spanning different geographies but doing so misses the point – the utter perverseness of Hong Kong’s status quo.

Photo: Frank Siu.

In this particular case, the Demographia estimates are in fact spot-on.  Their trend is entirely consistent with the Centa-City Leading Index[1] (CCL, 中原城市領先指數), published by Centaline Property Agency and a widely-accepted barometer of the local residential property market, calculated using pricing data from formal sale & purchase agreements.

Last year, a certain real estate executive pointed out that housing in Hong Kong is not unaffordable – aspiring homeowners simply have to quit whining, avoid Japan shopping sprees and trips to the movie cinema, and start saving!  For those unwilling to adopt such austerity measures, it may still be possible to join the housing market roller-coaster without actually owning any bricks and mortar.

Real Estate Investment Trusts (REITs) are an often-overlooked tool for investing in real estate.  Overlaying the price of a Hong Kong listed REIT on top of the earlier chart, we see that it is an excellent proxy for the local property market:

Photo: Frank Siu.

Armed with a little over $20,000 and a stock brokerage account, one can currently buy a “lot” (500 shares) of Link REIT and gain exposure to all the ups and downs of Hong Kong properties.  It also boasts a healthy dividend every year ($20,000 investment will yield approximately $800) – hardly enough for a Japan weekend getaway but good for some sushi and a few movie tickets.

HKSAR officials love to cite “economic competitiveness” as a catch-all justification for pushing their increasingly red agenda.  Public demonstrations in pursuit of universal suffrage, failing to enact laws suppressing civil liberties but masquerading as copyright legislation, delaying white-elephant infrastructure projects designed to force mainland law onto Hong Kong soil…these, we are told, all erode the city’s “competitiveness”.

What about skyrocketing housing prices?  How will this city attract and retain talent if workers cannot afford a comfortable place to live?  Are we doomed to follow Donald Tsang’s example and move to neighbouring Shenzhen?  At least there would be no need for cross-border extrajudicial kidnappings there.

Disclosure: I neither own nor intend to buy shares of Link REIT.

Frank Siu

Frank Siu is a financial econometrician working in the private sector. Born and raised in Hong Kong, he takes a keen interest in local affairs, particularly issues of rising social inequality and deepening political uncertainty. He enjoys curry fish balls and rubik's cubes.